Organizations desiring to obtain tax-exempt status must apply to the IRS for recognition as an exempt-organization.
Organizations seeking to become 501(c)(3) exempt organizations must apply to the IRS using Form 1023 or Form 1023EZ. The IRS recently revised the user fee (application fee) for this application. Previously, there was a three-tier system based upon the financials of the organization ($850, $600, and $275). The new user fees are $600 for Form 1023 (regardless of assets/revenue) and $275 for those eligible to use Form 1023EZ.
Form 1023EZ is used by organizations with no more than $10,000 in actual (or expected) gross revenue for the first four years combined. Luckily, for these very small organizations, the user fee remains unchanged.
Organizations seeking a group exemption benefit from a reduction in price. Previously, the user fee was $3,000. The new user fee is now $2,500.
Revisions to Form 1023EZ Application
In related news, the IRS revised the much maligned Form 1023EZ. As stated above, this is the application used for very small nonprofits. The previous application was a little too simple and opaque, stirring the debate that it was too easy for ineligible groups to obtain an exemption.
The revised Form 1023EZ now requires the organization to provide more information about itself, including “describe the organization’s mission or most significant activities”. While this additional question provides some insight into the propriety of the applicant's request for exemption, it may be of insignificant use because the applicant's response is limited to 255 characters.
Christine Jarzab Kuntz is an attorney specializing in the life cycle of businesses and nonprofit organizations. She is enthusiastic to share her knowledge, tools, and tips with the business and nonprofit community. She enjoys the excitement of tutoring start-ups, tackling the challenges of established businesses, and counseling her clients' transitions through all stages of the business life cycle.